FDI Facilitating Sustainable Development In and Out of an Emerging Market: Is Foreign Participation a Necessary Condition for Emerging Market Firms to Catch Up Globally?

Abstract

Foreign firms entering emerging markets used to be natural resource seeking and efficiency-seeking, basically utilizing local resources and cost-effective labor. With the incorporation of international corporate social responsibility (CSR) instruments such as the OECD Guidelines for Multinational Enterprises into International Investment Agreements (IIAs) treaties, more and more multinational enterprises (MNEs) pay attention to environmental management, technology transfer, and local capacity building. In this research, I intend to study the effect of inward foreign direct investment (FDI), as a whole and also in knowledge-intensive industries, in an emerging market context on local firms’ subsequent learning orientation and catching up strategies during outward FDI. By employing regional inward FDI data on 30 Chinese provinces and 16338 outward FDI projects from China, this research identifies that inward FDI in knowledge-intensive industries (e.g., Information Transmission, Software, and Information Technology) and from OECD countries facilitate Emerging Market Firms’ business sustainable development.